Soros takes sub-quantum leap into activism

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Is George Soros turning activist? His $29 billion hedge fund has famously confronted governments. But facing off with a $1 billion U.S. oil and gas company is novel. The move gives underperforming corporate bosses another scourge to fear.

A bellicose letter from Soros Fund Management to Penn Virginia on Wednesday could easily have come from an established activist like Carl Icahn. Scott Bessent, the chief investment officer at Soros’ firm, wrote that Chief Executive Edward Cloues has presided over “investor relations disasters” and is responsible for “egregious” strategic choices.

Along with Bessent, George Soros and his son Robert seem to have chosen a fairly easy target. Penn Virginia’s modest size made it relatively cheap to accumulate a nearly 10 percent stake. And despite recent gains, Penn Virginia shares are worth no more than five years ago, against a more than 40 percent rise in Exxon Mobil stock and a doubling of the S&P 500 Index. That makes questions over strategy legitimate.

But shareholder activism isn’t Soros senior’s usual modus operandi. His Quantum fund is best known for big macroeconomic battles, including the 1992 bet against the pound that helped force Britain to devalue its currency. Only last year, Soros scored big gains by shorting the Japanese yen after monetary easing encouraged by Prime Minister Shinzo Abe.

As a family-only fund since 2011, the Soros vehicle no longer needs to attract outside investors. Even so, activism has been among the most lucrative hedge-fund strategies in recent years, returning 21 percent in 2012 and 16 percent in 2013, according to Hedge Fund Research. That could be one reason to try it – although the easiest pickings may already have gone to the likes of Icahn, Bill Ackman at Pershing Square Capital Management and Dan Loeb at Third Point.

Another factor could be a changing of the guard. George Soros is 83, his son is involved in the business, and Bessent – who rejoined the firm in 2011 – has a background investing in companies, including a stint with short-selling hedge fund boss Jim Chanos. It’s only a sub-quantum leap into activism so far. But the prospect of scrutiny from the Soros fund is another reason for subpar corporate boards to raise their game.

A family hedge fund worth $29 billion? As such, the fund is not required to file reports with the FCC, but it is OK to go after companies that are. How is this fair to public companies and their shareholders? Is Soros using high frequency trading and offshore dark pools to further tilt the playing field in his favor?

This type of fund is the best argument that I know of to enlarge the “estate tax” and use some of the proceeds for government regulation of these predatory behaviors. If this is not done, in the not to distant future we can look forward to the national dominance of yet another aristocratic class, if we are not there already.

Didn’t western civilization try this before? The social imbalances created led to centuries of warfare, including the development of fascism in the 20th century. I doubt that this is an outcome that Mr. Soros intends.